U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16141 / May 13, 1999
Securities and Exchange Commission v. Jonathan C. Papa, Papa
Holdings, Inc., Ponzu V, Inc., Ponzu VI, Inc., Express 1,
Inc., and Papa Exp 2, Inc., Civil Action No. 99-05049 SVW
(CWx) (C.D. Cal.)
On May 13, 1999, the Securities and Exchange Commission
("Commission") filed a complaint in federal court in Los
Angeles against Jonathan C. Papa ("Papa") of Calabasas,
California, Papa Holdings, Inc. ("Papa Holdings"), and four
of its subsidiaries. Papa and Papa Holdings controlled the
Papashon Restaurant in Long Beach and the recently closed
Papashon Restaurants in Beverly Hills, Pasadena, and Encino.
The Commission alleges that the defendants fraudulently
offered and sold stock in Papa Holdings and the four
subsidiaries.
The complaint alleges that from about November 1995 to
January 1999, Papa Holdings offered and sold preferred stock
in Papa Holdings and the four subsidiaries, raising $21.6
million from 1,300 investors nationwide. The defendants
represented in the offerings by the four subsidiaries that
the investors’ funds would be used to develop, own, and
operate new Papashon restaurants, when, in fact, Papa and
Papa Holdings used the money to pay for operating losses,
equipment, and property for Papa Holdings and four of its
existing Papashon restaurants. In the securities offerings
by Papa Holdings and the four subsidiaries, the defendants
also misrepresented or failed to disclose that 30% to 48% of
offering proceeds would be used to pay sales commissions to
Papa Holdings’ officers, employees, and sales agents for the
sale of the stock. The complaint also alleges that Papa and
Papa Holdings violated the securities registration and
broker-dealer registration provisions of the federal
securities laws in connection with the offer and sale of the
securities of Papa Holdings and the four subsidiaries.
The defendants, without admitting or denying the
allegations in the complaint, consented to the entry of a
judgment permanently enjoining them from future violations
of the antifraud provisions of Section 17(a) of the
Securities Act of 1933 ("Securities Act") and Section 10(b)
of the Securities Exchange Act of 1934 ("Exchange Act") and
Rule 10b-5 thereunder, and the securities registration
provisions of Sections 5(a) and 5(c) of the Securities Act.
Papa Holdings and Papa also consented to permanent
injunctions enjoining them from future violations of Section
15(a) of the Exchange Act, the broker-dealer registration
provision. The judgment also orders Papa Holdings and Papa
to pay disgorgement and prejudgment interest on their ill-
gotten gains, and also orders Papa to pay civil penalties,
in amounts to be determined by the court.